Moly Mines tough metal for tough times

Supply and Demand

Although current molybdenum (moly) production meets demand, refiners, or roasters, are expected to run into a shortfall between 2009 and 2015, depending on demand.

Demand for Molybdenum has been growing at nearly 8% over the past three years. Analysts expect demand to continue growing between 4.5% and 6.0% over the next three years, which is expected to outpace growth in supply and deplete already low inventories.

Over the past ten years, moly compound growth rates have grown from 2% (1997-2001) to 5% (2002-2006). This rapid demand growth is evidenced most notably in steel output, which grew 7.5% in 2007 and is expected to grow nearly that much in 2008.

As moly demand growth has outpaced production, consumers of moly have increasingly turned to inventories of moly to supplement production. In just five years, global moly inventories have fallen from over 6.5 months of production to current levels of 2.7 months. Current inventory levels are expected to fall further as no significant new supply is set to enter the market until the second half of 2009 and other potential suppliers are facing construction delays due to difficult credit markets. At current demand levels, 20-25 million pounds of new molybdenum production must come to market each year to keep pace with market demand.

A roaster processes the molybdenum into a fine powder, pellets, or other forms. Total world molybdenum roaster capacity is currently 320 million pounds per year – this is barely enough to meet demand. There is not much excess roasting capacity, and new permits for the production of any new roasters in the United States looks unlikely.

Global roaster capacity also looks limited, and a future roaster shortage is predicted. [This analysis is predicated on the assumption that mines will be able to increase output].
Pipelines and nuclear reactors

Western demand is projected to increase by around 3 percent annually, while China and the CIS demand is projected to increase by around 10 percent annually, increasing overall global demand by around 4.5-5.0 percent annually.

Increasing demand can be attributed to two main factors. Hydroprocessing catalysts are becoming essential for crude oil. The other contributing factor is the increase in nuclear reactor construction.
Increasing demand for oil and electricity by Asian economies such as China and India from 2010 and beyond will require more pipelines being built and new reactors to be developed.

One very important source of ongoing demand growth for molybdenum is the petroleum industry that has unlocked previously sub economic reserves of sour gas and oils. The worldwide search for new oil supplies and the extension of existing reserves by drilling deeper and further off-shore should continue to stimulate demand for molybdenum. Extracting, transporting and refining of oil and gas, requires significant amounts of corrosion resistant molybdenum steels.

There are 48 nuclear reactors planned to be built by 2013, and approximately 100 are to be built by 2020. The International Molybdenum Association (IMOA) says that an average reactor contains about 520,000 feet (160,000 m) of stainless steel alloy. Some larger reactors contain over 1 million feet of stainless steel alloy.

As the chart shows, the moly price has remained solidly at US$33.50 and at high levels despite the fall in other commodity prices. Given the outlook for demand/supply for moly, this is not surprising. That said, we wouldn't be surprised to see some tapering off of the price in the short term before climbing again in 2009/10.

Moly companies listed on stock exchange

Pure molybdenum plays on the ASX, where molybdenum is mined as a principal ore, are few and far between given the mining of molybdenum is recovered as a byproduct of copper and tungsten mining. Even fewer are opportunities for sleuths of emerging molybdenum producers.

Moly Mines Limited (ASX/TSX:MOL, FWB:HJI) has strong aspirations and potential to be one of the top ten producers of molybdenum in the world with its Spinifex Ridge Project in the Pilbara in Western Australia.

The massive Spinifex Ridge deposit boasts a 451 million tonne resource grading 0.05% molybdenum and 0.08% copper, and a potential 23-year, 20 million tonne per annum mining operation.
So far, Moly Mines has managed to tick just about every box since inception.

Two factors have slowed its progress. The credit squeeze and the amount of capital required (A$1.2 billion) to bring its Spinifex Ridge Project to fruition.

That said, Moly Mines has showed mighty resilience, raising US$150 million in quasi debt interim finance last month. This was a herculean achievement after when most commentators, analysts, some fund managers and media had written off its prospects of raising additional capital in current markets.
(Ahead of a larger piece we will write on Moly Mines), we believe the importance of the Spinifex Ridge project to the molybdenum market, the quality of its stakeholders, the large shareholder and new backers should be enough encouragement for Moly Mines holders to stay the course.

For would be investors, we would continue to keep a close watch on Moly Mines for future news.

Moly Mines was last trading at A$0.65
[Acknowledgement to Moly Mines, General Moly, Rio Tinto , Roca Mines for use of data].

Other Moly companies

Columbia Yukon (TSX.V:CYU) is a Canadian mineral exploration company focused on the development of its Storie Molybdenum Property deposit located in northern British Columbia, 5km south of the former Cassiar Mine townsite. Indicated resource of molybdenum approximately 98 million tonnes grading 0.064% Mo.

Ovoca Gold Plc (AIM:OVG.L, Frankfurt OVX.GR) with its The Pellapahk molybdenum-copper deposit in Russia. The Russian P1 category resource for this prospect of 300 million tonnes at 0.06% molybdenum, 0.25% copper and 0.08 grammes per tonne gold.

Zamia Gold Limited (ASX:ZGM) A molybdenum (Mo) deposit was discovered in early 2008 at Zamia's Anthony Prospect in Central Queensland, Australia. The drilling results are showing extensive mineralisation with grades up to 1920 ppm (part per million) Mo. With mineralisation open in all directions, this could potentially become a world-class porphyry style deposit. – Proactive Investors Australia